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From bricks-and-mortar failure to online success

John Allen and Mitch Fraser know what it's like to fail. Three years ago, their entrepreneurial dreams were dashed and they almost walked away from what has now become successful home loan comparison site, Tomorrow Finance.

Allen, 28 and Fraser, 29, learnt a hard lesson after investing a combined $80,000 into a business that they thought would disrupt the home loan industry.

Tomorrow Finance works in a similar way to a mortgage broker. But while mortgage brokers often receive trailing commissions (which they receive for the life of the loan), Fraser and Allen negotiate one-off fees with the banks. Because the banks don't have to pay ongoing fees for the life of the loan, Allen says this results in a cheaper home loan for consumers.

Taking the plunge

The pair had so much faith in their new idea, they plunged headfirst into the business at the end of 2009 and spent the next four months negotiating arrangements with banks. Allen quit a job at professional services firm PwC and moved back home with his mum. Fraser scaled back his own web development business in order to focus on the new venture.

Allen says: "We fitted out a store in Castle Towers shopping centre in Sydney because we thought it would be good to be in the mortgage belt. We spent so much on the fit-out that people were coming up to Castle Towers just to check out what the store looked like, not because they wanted to do business with us."

Armed with blind optimism and a big dose of enthusiasm, they opened their doors in March 2010. However, optimism and enthusiasm don't count for much if no one actually walks into your store. Allen says: "We moved into the store on a Sunday night, opened on the Monday, then by Tuesday we were totally flat. We knew the numbers we needed for our venture to work and it was quite far off the mark. We hoped that crowds from Thursday late night shopping would save us, but they didn't eventuate.

"We realised that people aren't in the right frame of mind to talk about home loans when they walk into a shopping centre. They're there to buy groceries and sweaters."

A tough realisation

Fraser says: "I'd love to really disrupt what is a stale industry. I want to take a huge chunk out of the home loan market.

Fraser says that by the end of the first week, they knew the business was in trouble. "We just knew it wasn't working. So we'd sit around the shop brainstorming what we could do next."

Fortunately, the pair had only signed a temporary five-week lease, with an option to renew. Needless to say, they didn't renew but had to make the most of the rest of their lease. "We bought a whole bunch of pull-up signs to put on the shopfront," says Fraser. "And we hired marketing girls to hand out chocolates … I had never bought so many chocolates in my life."

While the signs and chocolates drove some customers into the store, this still wasn't enough. Allen says: "I think that centre management took pity on us and even gave us a second store upstairs because they could see how hard we were working."

Their disruptive business model didn't win them any fans either. "A woman barged into the stop and started yelling at me," says Fraser. "It turns out she was a mortgage broker and maybe she was a bit threatened by what we were doing."

Admitting defeat

At the end of the five weeks, knowing their shop was not sustainable, the pair packed up their fancy fit-out, licked their wounds and tried to figure out what to do next. Fraser says: "In hindsight, we should never have done it. But we learnt a lot from it."

Working out of Fraser's apartment, they spent the next two months turning their bricks-and-mortar idea into an online portal.

By mid-2010, they launched the first version of the new Tomorrow Finance website, which had morphed into a comparison site for home loans. Using the site, consumers express interest in particular loans and request to be contacted by a bank representative.

However, Allen and Fraser had to sink more money into the business, mainly to spend on marketing strategies such as Google AdWords. Allen says that in the competitive home loan market, one click can cost $5.

The problem was that they had sunk all their savings into the failed shop, so had to borrow about $100,000 from friends and family.

At this stage, blind faith and occasional income from consulting work enabled them to live and eat. As Fraser had the skills to build the website, thanks to a computer science degree, they didn't have to fork out extra cash for a web developer.

Slow progress

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Although the website generated more leads than the store in Castle Towers, the volume still wasn't where it needed to be in order for the business to work. This was made doubly hard because they are not paid any fees until a home loan reaches settlement. It's a process that can take months.

"It was a really tough period and we had to work out whether we made the right choice and determine whether we actually had a business," says Fraser. "I had sleepless nights. There's a lot of stress in running your business, especially when you're not taking a salary."

Allen adds: "I was always thinking about the business and worrying about it. It was quite stressful and it was tiring constantly trying to put on a brave face.

"I remember sitting at the pub with Mitch. We had used a lot of our marketing budget and had to figure out what to do next. We had a heart-to-heart conversation about the business and it didn't look very positive at the time."

That difficult conversation took place on a Tuesday. In true fairytale style, two days later, the partners got a phone call that changed everything. By Friday, Channel 7's Today Tonight broadcast a segment about the business, hailing the duo as "planning to take over the home loans provider market in Australia".

A lifeline

"That was a huge turning point in the business," says Fraser. "We were walking on air. We had 500 per cent more leads in just the first 30 minutes of the show going to air than we had all year."

And the leads kept on coming. After the initial spike in leads, Fraser says that traffic to the site never decreased to pre-Today Tonight levels. "We were absolutely stoked. It was the most amazing night."

In fact, the partners had to work through the night for several days – living on caffeine and pizza – as they had to manually process all the leads in order to direct enquiries to the right bankers (a process that has since been automated).

"After that, we started getting excited about the business and spending more money to market it," says Fraser.

Improving the business

Buoyed by the incident, they also paid more attention to tweaking the site via strategies such as A/B split-testing landing pages and different elements of the site.

"We make minor changes to the site to see which ones work best," says Fraser. "One that blew my mind was finding out that people are significantly more likely to click a green button than a red button, even if the rest of the site is the same. We saw a 20 per cent increase in leads just because our button was green. We were stunned. So now all our buttons are green!"

With business on the right track, Allen no longer lives with his mum, and the pair paid off all loans and recouped their investment in the business by mid-2011. At that time, they were also able to pay themselves a salary. Now, there are fewer sleepless nights and lower levels of stress.

Allen and Fraser say they are now reinvesting profits into the business. Fraser says: "I'd love to really disrupt what is a stale industry. I want to take a huge chunk out of the home loan market. Looking back, it's really good we both stuck at it and kept fighting – it would have been really easy to give up."

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